The second step of supply forecasting is the estimation of future losses of human resources in each department and the entire organization. This is done to identify the employees who leave the organization and to forecast future losses likely to occur due to various reasons. Employees may leave the organization for reasons like retirements, layoffs, dismissals, disablement, ill health, death, etc.
Reasons for high labour turnover and absenteeism should be analyzed, and remedial measures should be taken. Management has to calculate the rate of labour turnover, conduct exit interviews, etc., to forecast the rate of potential loss, identify reasons for the loss, and reduce it. Labour wastage should be taken into account while making a future forecast and finding out the reasons behind people leaving the organisation.
Action can be taken to arrest labour wastage and replace uncontrollable losses. The HR manager must know how to conduct a wastage analysis. For measuring permanent total loss due to labour, the following labour turnover formula is used:
"Labour Turnover Rate= (Number of Employees left during a specified period / Average Number of Employees during the same period) × 100"
HR managers have to calculate the rate of labour turnover, conduct exit interviews, etc. This helps them forecast the rate of potential loss, causes of loss, etc. Steps can then be taken to reduce loss. HR managers can calculate the labour stability index using the formula below:
"Labour Stability Index= (Number of Employees with one year’s service or more / Number of Employees one year ago) × 100"
By knowing all this, labour instability can be arrested, and labour turnover can be minimised. The British Institute of Management (BIM) expresses wastage as a percentage of staff in positions. This is depicted by the following formula:
"Annual Manpower Wastage= (Manpower leaving in a year / Average manpower in position) × 100"
Disadvantages of this Method
- It is difficult to assess the operational and financial implications of the given rate of wastage using this formula.
- It does not provide any meaningful indication for manpower planning.
Types of Potential Losses from Labour Turnover
Labour turnover can be classified into:
1. Permanent Total Loss
Caused by deaths, voluntary quits, retirements, dismissals, retrenchment, promotions out, demotions, and transfers out.
"This can be filled in by fresh recruits, promotions in, and transfers in."
2. Permanent Partial Loss
Due to loss of some skills, potential, and capabilities because of ill health or accidents.
"To compensate, organisations can help employees gain new skills, knowledge, values, and aptitudes through training."
3. Temporary Total Loss
Due to loss of aptitudes, values, or a change in outlook/attitude towards jobs, departments, or the organisation.
"Absenteeism is also a reason. Steps to reduce absenteeism and improve employee attitudes can help forecast and prevent this loss."
4. Temporary Partial Loss
Due to consultancy or advice offered by employees to other organisations.
"Although it causes a loss of labour hours, many organisations encourage this as it can also bring in revenue."
The Cost of Labour Turnover
Labour turnover can be costly. The losses to the organisation include:
- Leaving Costs → Payroll and personnel administration of the leaver
- Direct Costs → Recruiting replacements (advertising, interviews, tests) → Induction and training (manuals, courses)
- Opportunity Costs → Time spent by HR and managers in recruitment → Time spent by staff in providing training
- Input Losses → Loss in contribution, output, sales, customer satisfaction → Drop in performance before replacement or before new hires are fully trained
Stability Index
Another way of determining wastage is using the Stability Index, which shows the tendency for long-service employees to stay and the continuity of employment.
"Stability Index Formula= (Manpower with one year service at time t / Manpower in position at time t-1) × 100 "
This helps in forecasting future availability of employees by sex, occupation, and age. Having employee categories and their wastage rates helps determine the future availability of manpower.
Disadvantages of Stability Index
- Shows only the percentage of manpower who stayed for one year
- Does not directly measure wastage
- Gives equal weight to employees who left in under or over a year
Modified Stability Index (Bowey’s Stability Index)
This index is more comprehensive. It includes all employees and gives weightage to varying lengths of service.
"Bowey’s Stability Index= (Length of service of manpower employed at time of analysis / Total possible length of service had there been no wastage) × 100"
This method is useful to analyze the extent of wastage in terms of service length.
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